Generally Accepted Accounting Principle, management homework help

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Purpose of Assignment

The case study
focuses on break-even, margin of safety, and incremental analysis and
allows students to experience working through a business scenario to
apply these tools in managerial decision making. Students are required
to make decisions and provide solutions based on their evaluation of
financial data.

Assignment Steps

Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)

Scenario:
Shelley Jones has just been elected as president of the Circular Club
of Auburn, Kansas, and she has been asked to suggest a new fundraising
activity for the club. After a considerable amount of research, Shelley
proposed the Circular Club sponsor a professional rodeo. In her
presentation to the club, Shelley recommends the fundraiser become an
annual activity with the following goals:

Continue to grow each yearGive back to the communityProvide the club a presence in the community

Shelley’s
goal in the first year is to have an activity that would become an
“annual community event” and would break even the first year and raise
$5,000 the following year. In addition, based on the experience of other
communities, Shelley believed a rodeo could grow in popularity so the
club would eventually earn an average of $20,000 annually.

A rodeo
committee was formed. Shelley contacted the world’s oldest and largest
rodeo-sanctioning agency to apply to sponsor a professional rodeo. The
sanctioning agency requires a rodeo to consist of the following five
events: Bareback Riding, Bronco Riding, Steer Wrestling, Bull Riding,
and Calf Roping, Team Roping and Women’s Barrels. Prize money in the
amount of $3,000 would be paid to winners in each of the seven events.
Members of the rodeo committee contracted with RJ Cattle Company, a
livestock contractor on the rodeo circuit, to provide bucking stock,
fencing, and chutes. Realizing costs associated with the rodeo were
tremendous and ticket sales would probably not be sufficient to cover
the costs, the rodeo committee sent letters to local businesses
soliciting contributions in exchange for various sponsorships.
Exhibiting Sponsorships are $1,000 to exhibit products or services,
while Major Sponsorships are $600, and Chute Sponsorships are $500 to
have the name of the sponsor’s business on one of the six bucking
chutes. For a contribution of $100, individual sponsors will be included
in a Friends of Rodeo list found in the rodeo programs.

A local
youth group will be contacted to provide concessions to the public and
divide the profits with the Circular Club. The Auburn Circular Club Pro
Rodeo Roundup will be held on June 1, 2, and 3. The cost of an adult
ticket is set at $8 in advance or $10 at the gate; the cost of a ticket
for a child 12 or younger is set at $6 in advance or $8 at the gate.
Tickets are not date-specific. Rather, one ticket will admit an
individual to one performance of his or her choice– Friday, Saturday,
or Sunday. The rodeo committee is able to secure a location through the
county supervisors’ board at a nominal cost to the Circular Club. The
arrangement allows for the use of the county fair grounds and arena for a
one-week period. Several months prior to the rodeo, members of the
rodeo committee were notified the bleachers at the arena would hold
2,500 patrons. On Saturday night, paid attendance was 1,663, but all
seats were filled due to poor gate controls. Attendance was 898 Friday
and 769 on Sunday.

The following revenue and expense figures relate to the first year of the rodeo.

Receipts

Contributions from sponsors $22,000

Receipts from ticket sales $28,971

Share of concession profits $1,513

Sale of programs $600

Total receipts $53,084

Expenses

Livestock contractor $26,000

Prize money $21,000

Contestant hospitality $3,341*

Sponsor signs for arena $1,900

Insurance $1,800

Ticket printing $1,050

Sanctioning fees $925

Entertainment $859

Judging fees $750

Port-a-potties $716

Rent $600

Hay for horses $538

Programs $500

Western hats to first 500 children $450

Hotel rooms for stock contractor $325

Utilities $300

Sand for arena $251

Miscellaneous fixed costs$105

Total expenses $61,410

Net loss $ (8,326)

*The
club contracted with a local caterer to provide a tent and food for the
contestants. The cost of the food was contingent on the number of
contestants each evening. Information concerning the number of
contestants and the costs incurred are as follows:

Contestants Total Cost

Friday 68 $998

Saturday 96 $1,243

Sunday 83 $1,100

$3,341

On
Wednesday after the rodeo, members of the rodeo committee met to
discuss and critique the rodeo. Jonathan Edmunds, CPA and President of
the Circular Club, commented that the club did not lose money. Rather,
Jonathan said, “The club made an investment in the rodeo.” The rodeo
committee has requested an analysis of the rodeos performance and
evaluation of the CPA’s review.

Create a minimum 10-slide
presentation, including detailed speaker notes, as the committee’s
consultation team and respond to the following:

What did Jonathan
Edmunds mean when he said the club had made an investment in the rodeo?
Is his comment consistent with Shelley’s idea that the club should have a
fundraiser that would:Continue to get better each year.Give back to the
community.Provide the club a presence in the community? Why or why
not?Shelley, Jonathan, and Adrian Stein, the Fundraising Chairperson,
are beginning to make plans for next year’s rodeo. Shelley believes by
negotiating with local feed stores, inn- keepers, and other business
owners, costs can be cut dramatically. Jonathan agrees. After carefully
analyzing costs, Jonathan has estimated the fixed expenses can be pared
to approximately $51,000. In addition, Jonathan estimates variable costs
are 4% of total gross receipts. After talking with business owners who
attended the rodeo, Adrian is confident the funds solicited from
sponsors will increase. Adrian is comfortable in budgeting revenue from
sponsors at $25,600. The local youth group is unwilling to provide
concessions to the audience unless they receive all of the profits. Not
having the personnel to staff the concession booth, members of the
Circular Club reluctantly agree to let the youth group have 100% of the
profits from the concessions. In addition, members of the rodeo
committee, recognizing the net income from programs was only $100,
decide not to sell rodeo programs next year.Compute the break-even point
in dollars of ticket sales assuming Adrian and Jonathan are correct in
their assumptions.Shelley has just learned you are calculating the
break-even point in dollars of ticket sales. She is still convinced the
Club can make a profit using the assumptions above (second bullet point
above).Calculate the dollars of ticket sales needed to earn a target
profit of $6,000.Calculate the dollars of ticket sales needed to earn a
target profit of $12,000.Are the facilities at the fairgrounds adequate
to handle crowds needed to generate ticket revenues calculated above
(third bullet point above) to earn a $6,000 profit? Show calculations to
support your answers.A few members in the Circular Club do not want to
continue with the annual rodeo. However, Shelley is insistent the Club
must continue to conduct the rodeo as an annual fundraiser. Shelley
argues she has spent hundreds of dollars on western boots, hats, and
other items of clothing to wear to the rodeo. Are the expenses related
to Shelley’s purchases of rodeo clothing relevant costs? Why or why
not?Rather than hire the local catering company to cater the Contestant
Hospitality Tent, members of the Circular Club are considering asking
Shady’s Bar-B-Q to cater the event in exchange for a $600 Major Sponsor
spot. In addition, The Fun Shop, a local party supply business, will be
asked to donate a tent to use for the event. The Fun Shop will also be
given a $600 Major Sponsor spot. Several members of the Club are opposed
to this consideration, arguing that the two Major Sponsor spots will
take away from the money to be earned through other sponsors. Adrian
Stein has explained to the members the Major Sponsor signs for the arena
cost only $48 each. In addition, there is more than enough room to
display two additional sponsor signs. What would you encourage the Club
to do concerning the Contestant Hospitality Tent? Would your answer be
different if the arena were limited in the number of additional signs
that could be displayed? What kind of cost would you consider in this
situation that would not be found on a financial statement?Assume you
are elected chair of the rodeo committee for next year. What steps would
you suggest the committee take to make the rodeo profitable?

Show your work in Microsoft® Excel®.

Complete calculations/computations using Microsoft® Excel®.

Format the assignment consistent with APA guidelines.

one month ago


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